Financial Inclusion: A pathway to women’s empowerment

Each year, the month of March celebrates contributions of women to events in history and society as well as efforts towards gender equity. President Trump in his proclamation of March 2018 as the “Women’s History Month” emphasized that ensuring access to opportunities to women is vital to a nation’s prosperity.

Financial inclusion is one such enabler that provides a level playing field to women. It often leads to a broader social inclusion and gains for the economy. Christine Lagarde, Managing Director of the International Monetary Fund said, “When women do better, economies do better. This is smart economics.” Against this backdrop, it is worth exploring, the Reserve Bank of India’s (RBI) and Government of India’s (GoI) concerted efforts to empower women.

RBI has adopted a bank-led model for achieving financial inclusion such as Self-Help Groups-Bank linkage, growth of Non-Banking Financial Corporations-Micro Financial Institutions’, bank credit to Micro Small Medium Enterprises (MSME’s). In 2000, RBI instructed public sector banks to maintain data of women’s share of credit in their total lending portfolio. This led to a structural shift in the then existing system. The gender sensitive reporting helped policy makers and financial institutions to access gaps and devise solutions. The preferential loan schemes by public sector banks are one of the tailor made financial products aimed to incentivize women to not only save, deposit but also avail credit for personal and business growth.

The Government of India (GoI) too has enabled women’s access to capital. Stand-Up India supports entrepreneurship with a special focus on women and Scheduled Caste/ Scheduled Tribe communities. The Trade related Entrepreneurship Assistance and Development (TREAD) is another program aimed at economic empowerment of women entrepreneurs in non-farm activities. In order to enable entrepreneurs manage the costs, the Micro and Small Enterprises Cluster Development Programme (MSE-CDP) contributes up to 90% of the cost of projects owned and managed by women entrepreneurs.

Other GoI schemes are geared to provide concessional interest rates, relaxation in repayment schedules, and collateral requirements among others. In the context of the requirement of a collateral deposit (property) with the bank or financial institution for borrowing credit, it is worthwhile to note that as per World Economic Forum’s annual meeting 2017, women own less than 20% of the world’s land. Also, three quarters of the world’s population cannot prove they own the land on which they live or work. The Credit Guarantee Fund Trust for MSEs set up in year 2000 alleviates this constraint. The CGTMSE provides collateral free funding up to Rs. 1 crore. A guarantee cover up to 80% is offered on loans extended for MSEs operated and/ or owned by women up to Rs. 50 Lakh.

These schemes and policies devised by the RBI, GoI, and the public sector banks have enabled a conducive environment for financial inclusion. The change in perception from women being viewed as vulnerable and not creditworthy to being considered as potential bank clients is captured by the World Bank’s triennial 2014 Global Findex database, which says that the penetration of female account (aged 15 years or over) with a bank or a financial institution has increased from 26.50% in 2011 to 42.60% in 2014. Also, as per the five year plan devised by RBI’s expert Committee on Medium-term Path on Financial Inclusion in India (15 July 2015), access to finance in India is higher as compared with its emerging market and developing economy peers. However, the report suggests that the evidence for the use of this finance is less compelling and recommends policy intervention.

In addition, leveraging IT, mobile banking, and providing services that enable financial literacy will increase transparency, provide better user experience and help women to make informed decisions. These measures are a step forward to achieving RBI’s vision 2020 —to bank the unbanked.

Prajakta Diwan, Spring Fellow